The Good News: Demonetisation Spurs Behaviour Changes We All Hoped To See

Even as the newspapers and TV channels headline the dreary day-to-day struggles of ordinary people and small businesses following the demonetisation of high-value notes, the crisis has begun producing exactly the kind of responses that augur well for the future. Apart from an expected fall in interest rates and higher tax revenues, buyer-seller behaviour is changing for the better amidst the general short-term economic downturn.

Here is an indicative laundry list of post-demonetisation good news, including the short-term one where cash pushed into people’s hands is about to spike, alleviating the shortage psychology.

#1: Of the Rs 14 lakh crore driven out of circulation by demonetisation, around 10 per cent is already back in circulation – Rs 1.03 lakh crore through ATMs and another Rs 33,000 crore through bank branches. This will accelerate in the next two weeks.

#2: The cash shortage will substantially ease as ATMs get recalibrated and are empowered to spew Rs 2,000 and Rs 500 notes. At last count, some 75,000 ATMs had been recalibrated, and at the current rate of additional 10,000-12,000 machines being recalibrated daily, 90 per cent of India’s two lakh plus ATMs will be cranking out new notes by 5 December. That’s when the cash crisis will begin abating, even as bank branches themselves focus on delivering cash to companies and customers – and the rural sector.

#3: With time running out for the use of old notes (24 November being the latest deadline) in places like petrol stations, hospitals, utility payments, and civic taxes, etc, there has been a surge in payments at these places. Uttar Pradesh discoms are seeing a surge in bill payments, and Maharashtra’s civic bodies have reported a Rs 1,000 crore zoom in tax collections. People are rushing to pay things they anyway have to pay, this time using old notes.

#4: E-wallets like PayTM and Mobikwik and Freecharge are reporting a huge spurt in digital payments. While PayTM is expecting gross merchandise value to hit $5 billion this year, transactions on its app have risen from 2-2.5 million transactions daily to seven million now. Similar trends have been reported at other e-wallets.

#5: Banks are reporting a huge jump in demand from small merchants for point-of-sale terminals and card swipe machines. This shows that the small trader is modernising his payments system, thanks to the crisis precipitated by demonetisation. An Indian Express report quotes an HDFC Bank official as saying that from 5,000 a month, demand for card swipe machines has risen to 5,000 daily. That’s a 30-fold increase. The same report indicates that the demand is not coming from the usual premium stores or outlets, but smaller players like kirana stores and even vegetable vendors, not to speak of beauty parlours. PayTM claims to be adding 25,000 merchants daily.

#7: Infrastructure companies are set to collect a huge benefit from falling interest rates, thus increasing their potential to invest. NHAI (highways), IRFC (railways) and NTPC (power), who are authorised to raise money through tax-free bonds, are expecting to raise money much more cheaply as bond yields have crashed post-demonetisation. The right kind of investments are being spurred.

#8: Big retailers are seeing a spike in sales as customers temporarily shift sales from cash-only kirana merchants to card-based outlets. Kishore Biyani of Future Retail, who runs Big Bazaar, has reported sales rising by 30 per cent on weekdays and about 50 per cent on weekends, spurred by additional discounts.

#9: Hawala transactions, and especially imports from China, are taking a hit. With demonetisation, hawala rates (which generate dollars for rupee payments in India) have soared, making underinvoicing of imports to evade duties near impossible. According to an Economic Times report, many Chinese products are underinvoiced and the difference paid through hawala dollars generated in Hong Kong. But this racket is ending, and more Chinese products will have to come in after paying the usual customs rate. One should expect more revenues for government, and higher prices for Chinese products.

#10: Ordinary people, especially in cities, are adapting to this change faster than one would have expected earlier. Here are some stories to illustrate this point. People are using cards, internet banking and e-wallets more than ever. They are learning to live with less cash.

This is not to suggest everything is hunky dory, especially for the non-urban masses and for small and self-employed people, but the underlying message is hopeful.

India is using the crisis to change the way it looks at cash. The note crisis is helping even as it hurts.